Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for June 24th, 2014

Jorge Giordani (also known as The Monk) has been such a fixture in Chavez’ Cabinet and now under Maduro, that the last time he was removed from the Cabinet, this blog had yet to be born. And this blog is now almost twelve years old. And even if there is no written record of that departure in May 2002, I do recall a feeling of relief that Mr. Giordani had finally departed. Except his absence did not last much and Chavez brought him back to the Cabinet, more powerful than ever. At the time, Chavez’ intelligence police must have been subpar, as Mr. Giordani held meetings on Saturday at his home with his buddies, where he mostly blasted Chavez, his collaborators and their policies. Then last week, as I was on vacation, Mr. Giordani was fired once again, which gave me an immense satisfaction and almost pushed me into writing something on the fly, but I decided this deserved some thought, as Giordani’s now infamous document “Testimony and Responsibility in Front of History“, not only gives us an unusual glimpse at some of the dynamics of the last few years, but deserves careful reading. Careful not only to achieve accuracy, but also in order to interpret the true meaning of the impact , if any, of Giordani’s departure from the Government.

Simply, there are too many inaccuracies in both the contents of the document, as well as in some of its interpretations.

If anyone has read Giordani’s document, it is fairly dense and obtuse. His writing is not the most organized and clear in the world and sometimes thoughts and ideas are not properly structured. Thus, one has to read it carefully in order to understand what the former Minister is saying. I have tried to do that in detail. Punishing work.

To begin with, Giordani clearly admits that the Government and him personally, repeatedly violated the law, when he says “that in order to consolidate political power as an essential objective to strengthen the revolution..we managed with a huge sacrifice and with a financial and economic effort which took us to have access and use resources at extreme levels…”

Nothing new there, Giordani has never been one to follow the laws of the Constitution. In fact, when he came to power he ignored the law of the Macroeconomic Stabilization Fund, first not contributing to the fund what the law stated, which was followed up with the use of the resources in that fund for objectives different than those established by law. But in that simple sentence, Giordani states that he and his buddies broke many Venezuelan laws. Because you can’t use public funds to finance electoral campaigns and you can’t use funds for a purpose different that what they were budgeted for, both of which are punished with jail. The anti-corruption law would say that Giordani and other Government officials committed fraud, misuse, embezzlement, corruption, abuse of the position for political purpose and influence peddling.

Giordani and those Government officials responsible for this would get at least 5 years in jail. Of course, the “new” left, the modern, populist, socialist left, non-democratic left only applies the laws to its enemies. So, the revolution forgives him.

But the “principled” Jorge Giordani goes even further, because he talks about corruption in Cadivi (later Cencoex) and his suggestion to President Maduro that he become Head of Cadivi to stop corruption. Well, by law, Giordani as Minister was supposed to denounce this corruption to the Prosecutor and he is directly accusing President Maduro of covering it up, when he says that Maduro did not accept his proposal on corruption, implying Maduro also failed to denounce it.

And I use the term “principled” Jorge Giordani on purpose, because I have seen the term used referring to him both in Chavista and opposition circles since he was fired. Suggesting Mr. Giordani has principles, when he is confessing to violating the laws, diverting public funds and using public funds for political purposes is like saying any criminal that sticks to his methods somehow has principles of any sort.

And this lack of ethics extends to Giordani somehow avoiding to note that many of the irresponsible policies implemented were his responsibility. That the same funds that he suggests are being managed in a corrupt way, were set up by Giordani in such a way as to avoid controls and that the excess expenditures and that loans to PDVSA and the growth in monetary liquidity approved by himself as Minister of Finance, member of the Boards of PDVSA and the Venezuelan Central Bank.

And I can not forget the Fonden funds that are still unaccounted for and took so much space in this blog and others as some US$ 30 billion are still missing from the ledgers.

And despite using the word responsibility in the title of his document, Mr, Giordani is absolutely irresponsible all over the place. For example, he says that President Maduro gave him “new” responsibilities when he was named Minister of Planning, but Mr. Giordani never ceased being Minister of Planning since 2002, he just somehow convinced President Chávez to merge Planning and Finance into a single Ministry. There was nothing new in 2013 for Giordani, he was simply removed from the control of the purse strings in Finance and moved to the less important Planning Ministry to think long term.

But his selective memory is amazing in not recognizing how the same system of exchange controls he helped implement, generated the corruption that he now wants to fight so badly. And by starting the timeline at the time of Chávez last days, Giordani evades talking about the secretive way in which bonds were allocated in the numerous Venezuela and PDVSA issues, or how the Argentinean bonds were used to feed in a very non-transparent and corrupt manner the swap system. To say nothing of the infamous structured notes or the buddies and even brothers of the revolution buying banks under Giordani’s not so watchful eyes.

And his testimony conveniently starts right after Giordani single handedly killed Venezuela’s capital markets when he tried to pass the blame of not being able to hold the parallel exchange rate in 2010, jailing innocent people and destroying some 5,000 jobs in a process which was controlled by Giordani’s trusted men, many of which made fortunes in the process.

To say nothing of the money spent trying to replace that capital markets system starting the foolish Bolsa Bolivariana (still around?) and now, four years later after getting mad at the brokers for a 30% devaluation of the currency, the all mighty Giordani-managed-controlled system has yielded a 1,000% devaluation in that parallel rate, now called the black market rate.

Way to go Monk!

But if there is one puzzle to me, is the excitement by the investment community over the departure of the Monk. Somehow, it would seem as if he was replaced by a Venezuelan that just won the John Bates Clark medal for Economics, instead of a talibanic Geographer responsible for the only default (Sidetur) of a Venezuelan bond in the last 20 years. Somehow we are expected to believe that Giordani’s departure opens the way for the magic adjustment that the Venezualn economy requires.

But wait! Haven’t you read the letter? Giordani says he has been out of the loop essentially since Chávez’ health deteriorated and certainly since Maduro became President. So, if I may ask, how has he been an obstacle to the implementation of this so called magic adjustment program?

I can go even further, read the letter again. The style is obtuse, but Giordani says that six things will require to be “revised” going forward, including the price of gas and other subsidies, reduce debt issuance, devalue and reduce subsidies to public companies. (This has been also noted by Victor Salmeron) In fact, Giordani says he asked for a reduction of public expenditures, PDVSA’s increasing debt should be revised and so should internal indebtedness.

Sounds to me like Giordani was the pragmatist and not the other way around like markets seem to be suggesting.

In fact, what this all suggests is that the various factions within Chavismo can’t agree on policy going forward. The much needed adjustment, including raising the price of gas and at least removing the Bs. 6.3 per US$ rate is something that Giordani also wanted, and economic Czar Ramirez wants, but the military may not want at this time. What is clear is that the current Cabinet is as trapped in its own past and contradictions as Giordani is and was. The longer they wait the deeper in trouble they will be. The window to adjust, if you think politically, its short if you want inflation to go down way ahead of the 2015 Parliamentary election. But apparently they can’t agree on policy and Giordani’s departure may create more passionate stances, for and against.

Yes, it is good that Giordani is out because his thinking, as evidenced in his article, is retrograde and perverse. Giordani fails to recognize any of his errors. His radical pedigree going back to the Garibaldi unit is all he is proud about. He considers himself Caribeño, but seems to have more loyalty to his communist beliefs than to the idea of his own country, his Patria.

I am really not sure Giordani throws such an important monkey wrench into Chavismo. Unless he continues to speak up, his departure will quickly be forgotten, as those in control, many of which are in charge of the same corruption he denounces, will make sure his allies are silenced or else. Ironically, while he never publicly denounced corruption frontally, he was one of the few voices internally to speak up against corruption. However, in his mind the end justified the means. The survival of Chavez and the revolution was above all and thus he never spoke up publicly like he should have.

I continue to be very skeptical that a full adjustment is on the way. Giordani will not be missed, as the kids song goes: So Long, Farewell, Aufiderzein, Goodbye…Mr Giordani, you will not be missed, but your legacy of destruction and ideology will be really hard to erase.